CFTC Gets Facts of Bullion Manipulation

By Patrick A. Heller
Numismaster.com
Tuesday, March 30, 2010

http://numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=9921

Last Thursday, the Commodity Futures Trading Commission held hearings on the possible imposition of commodity futures and options trading limits in the precious metals markets. Each of the five commissioners plus two CFTC staff members made presentations. In addition, 14 outside parties accepted invitations to make presentations.

This hearing came about in part because of long-term complaints from organizations such as the Gold Anti-Trust Action Committee and individual analysts such as Ted Butler, Reg Howe, James Turk, Frank Veneroso and Adrian Douglas that the gold and silver commodity markets have been subject to blatant extensive price suppression manipulation by the U.S. government and its trading partners.

Among the outsiders making presentations at this hearing were Bill Murphy, in his capacity as chairman of GATA, and Harvey Organ, an individual investor.

Murphy was advised to expect a strict time limit of five minutes for his presentation, even though the CFTC chairman Gary Gensler had the option to allow more time. In order to provide the maximum documentation possible into the official written record of these proceedings, Murphy raced through his 6-1/2 minute oral presentation in just five minutes. It was not a graceful presentation, but Murphy introduced a lot information into the record that the CFTC can no longer pretend not to know.

After his formal remarks, Murphy was asked by commissioner Bart Chilton if he could provide some specific instances where such manipulation had occurred. This was the opening for Murphy to introduce a bombshell.

In November 2009, Andrew Maguire, a former Goldman Sachs silver trader in that firm’s London office, had contacted the CFTC Enforcement Division to report the illegal manipulation of the silver market by traders at JPMorgan Chase. He described how the JPMorgan Chase silver traders bragged openly about their actions, including how they gave a signal to the market in advance so that other traders could make a profit during the price suppressions.

Maguire had a series of e-mails with Eliud Ramirez of the CFTC Enforcement Division explaining how the manipulations were tied to the Bureau of Labor Statistics monthly release of non-farm payroll figures and other recurring events. On Feb. 3, 2010, Maguire sent an e-mail to Ramirez and commissioner Chilton saying that he had observed the JPMorgan Chase signal that the price of silver would be knocked down upon the announcement of the non-farm payroll report at 8:30 a.m. on Feb. 5. Maguire then sent them e-mails on Feb. 5 as this suppression was in process, pointing out that it would not be possible for him to have such accurate advance information about this development if the markets were not controlled by JPMorgan Chase.

Maguire asked to be invited to speak at the CFTC hearings this past Thursday. When he was not invited, he contacted Adrian Douglas, another director of GATA, on March 23 to supply this information to be made public at the CFTC hearings. Murphy filled Maguire’s request in response to Chilton’s question asking for specific instances of price manipulation. When I saw him Saturday, Murphy told me that the CFTC commissioners all went pale as he described exactly how the CFTC was provided this detailed information about silver price manipulation but had not yet done anything about it.

During Harvey Organ’s presentation, a question came up about whether large short positions on the London Bullion Market Exchange also reflected efforts to suppress gold and silver prices. Adrian Douglas was permitted to address the hearing on this issue, a subject he has studied extensively. Douglas pointed out that the huge volume of trading levels in the London market (averaging $22 billion per day) could not possibly be settled by delivery of physical metals. To this point, the commissioners asked Jeffrey Christian, one of the other speakers who runs CPM Group – one of the most respected precious metals consultancies, whether Douglas’s contention that the London gold and silver markets could not be settled by delivery of physical metal for all the contracts. Christian rejects the concept that the gold and silver markets are manipulated, but he did confirm Douglas’s analysis.

In effect, the commissioners were told that almost all of the trading activities on the London exchange were merely settled by paper for paper, not for physical metals as the exchange supposedly requires. Further, the commissioners were told that it was impossible for the London exchange to ever deliver all the gold and silver owed to the owners of contracts.

After the hearing, GATA publicly released copies of Maguire’s e-mails with the CFTC. Murphy also revealed that Maguire had recorded all of his telephone conversations with the CFTC without asking for their permission to do so. This is legal to do in Britain, but such recordings cannot legally be provided to other parties. GATA is currently working to ensure that these recorded conversations can be legally released to the public.

This past Saturday, Murphy addressed a full room with his Numismatic Theatre presentation at the American Numismatic Association convention in Fort Worth. There, he shared much of the breaking information he provided to the CFTC commissioners. Little did we know at the time, but at about then Andrew Maguire’s car, in which his wife and he were riding, was struck by a hit-and-run driver. Both Maguire and his wife were briefly hospitalized. The police eventually arrested the other driver. The Maguires may be considered more than lucky. There are other past would-be whistle blowers about the manipulation in gold and silver markets that died in unusual accidents before they were able to bring forth their evidence.

Curiously, the live television broadcast of the CFTC hearing suffered a technical failure right as Murphy was set to begin his testimony. This was corrected right after Murphy was finished. At the same time, at least one live voice broadcast failed during Murphy’s presentation. Coincidence?

Now that this information about silver price manipulation and about the massive shortage of physical gold and silver on the London exchange is part of the official record, I expect huge fallout. Remember, after the five men were arrested for breaking into the Democratic headquarters in Watergate in June 1972, it took more than two years for President Nixon to resign. I don’t think it will take anywhere near this long for last Thursday’s revelations to blow back against the U.S. government and the U.S. dollar. Once the public realizes the extent of the manipulation, gold and silver prices are likely to skyrocket.

I think this hearing will be the beginning of the end for those trying to suppress gold and silver prices. If you would like to view what happened yourself, please check the video clips listed below.

• To view Bill Murphy’s prepared statement to the CFTC, see http://www.youtube.com/watch?v=9wIMpe9SjfQ

• To view Bill Murphy’s citation of specific instances of silver market price manipulation to the CFTC, see http://www.youtube.com/watch?v=e9bUOr6JP4s

• To view Adrian Douglas’s discussion of the Ponzi-like gold trading on the London Bullion Market Exchange to the CFTC, see http://www.youtube.com/watch?v=jok3XLBz_SI

• To view all or part of the March 25 CFTC hearings, see http://www.capitolconnection.net/capcon/cftc/032510/FCTCwebcast.htm

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Reprinted with permission.

For further reading:
"It's Ponzimonium in the Gold Market", Nathan Lewis, March 31, 2010
"The Coming Precious Metals Short Squeeze", John Rubino, March 30, 2010
"CFTC Hearing; Poised to Act!", Jason Hommel, March 30, 2010
"Former Goldman Commodities Research Analyst Confirms LBMA OTC Gold Market Is 'Paper Gold' Ponzi", Zero Hedge, March 28, 2010
"Dispute over curbs on metal futures", Gregory Meyer, Financial Times, March 26, 2010
"A great day at the CFTC, and another one's coming", Gold Anti-Trust Action Committee Inc., March 25, 2010
"Whistleblower Exposes JP Morgan's Silver Manipulation Scheme", Zero Hedge, March 25, 2010
"Comments for the Commission for the Public Hearing on the Metals Markets", Adrian Douglas, March 25, 2010

Why The Yuan Can't Become The World's Reserve Currency

By Ignacio de la Torre
Forbes
Wednesday, March 24, 2010

http://www.forbes.com/2010/03/24/yuan-renminbi-currency-leadership-citizenship-world.html

Far too many things would have to go right in China and wrong in the U.S.

When the country emerged as the world's superpower, after a protracted confrontation, it paid a high price. It had formerly exported capital and had its public spending well under control; now it ran extremely dangerous trade deficits and could sustain its funding only by massively selling bonds to its neighbor across an ocean to the west. That neighbor built up large trade surpluses as it accumulated those bonds. No one thought it could ever topple the superpower from its place as world leader. They certainly didn't imagine that the bond-buying nation would go on to make its money the world's reserve currency. But that is exactly what happened.

The U.S. and China today? No. Great Britain and the U.S. in 1918. The pound went into an inexorable decline after World War I that ended with the dollar taking over when the Bretton Woods agreements were worked out after World War II.

The consulting firm McKinsey recently published a study titled, "Will China's Currency Replace the Dollar as the World Reserve Currency?" It's a question many people have been asking.

There are several strong-sounding arguments in favor of the proposition. (1) America's trade deficit has been beginning to seem unsustainable, and shifting demographics mean it's only going to get worse. (2) The U.S. has incurred trade deficits repeatedly for far longer than can be explained by its having the world reserve currency, and the Chinese Central Bank has long been accumulating reserves, thanks to its trade surpluses. (3) The Federal Reserve's lax monetary policy is further weakening the dollar and threatening to trigger inflation. (4) The U.S.'s enormous and growing foreign debt might encourage the use of inflation to devalue that debt. (5) Furthermore the subprime crisis has profoundly harmed American financial systems and consumers.

But there are at least nine even stronger counterarguments. (1) The Chinese capital markets would need to have far more liquidity and transparency before investors would consider using the renminbi (China's official currency, whose unit of denomination is the yuan) as a world reserve currency, and there's no sign of that coming about. (2) The U.S. has never, in its 234 years, missed a payment on its debt. Right at the dawn of the republic, during the War for Independence, Congress concluded that nonpayment of debt would be national humiliation and must never happen. (Argentina's congress took the opposite route when it approved the nonpayment of debts in 2002, to the applause of all the legislators present.) (3) Because China is still a communist dictatorship, its fiscal and monetary policies won't respond to market forces the way a democracy's do, and that creates a strong element of uncertainty. (4) China is facing its own demographic time bomb as a result of laws introduced in the 1980s that limit the number of births. (5) China's economic growth is based on the export of low-added-value products and a controlled rate of exchange, which give it an unbalanced economy with a low level of consumerism. (6) China is effectively two countries, one urban and developed the other rural and undeveloped, and the divide between them could lead to social instability that could threaten the country's economy and currency. (7) The Chinese economy depends too heavily on exports to one nation, the U.S., and (8) has structural weaknesses because of a lack of supply of raw materials. (9) The U.S. economy relies on innovation and competition to generate productivity; without those free-market forces China's medium-term competitiveness is more uncertain.

The pound didn't stop being the world reserve currency overnight. The process started around 1870 and was completed in 1945. For the yuan to take over from the dollar, the Chinese would have to do a great many things extremely well, and the Americans would have to do a great many things very badly. It just does not make sense to bet on that happening. The dollar will continue to be the world reserve currency because, among other reasons, there is no valid alternative, especially now that the euro has been rocked by Greece's crisis.

Napoleon is reported to have said "Let China sleep. For when China wakes, it will shake the world." What Napoleon did not know was that in 1800 China represented 50% of the world's gross domestic product--and today it represents 10%, at market prices. China depends far more on the U.S. than the U.S. does on China.

Many generations will come and go before there is any chance that China's money will become the world reserve currency. It will probably never happen.

Ignacio de la Torre is a professor and academic director of the master in finance programs at IE Business School, in Madrid.

For further reading:
"Reserve currencies: Dilemma for central bank chiefs", Peter Garnham, Financial Times, March 29, 2010
"China 'will not bow on currency'", Al Jazeera, March 25, 2010
"Yuan Poised to Become Reserve Currency", Bloomberg, March 19, 2010
"Will Yuan Replace the US Dollar as the Reserve Currency of Choice?", Riaz Haq, March 18, 2010
"China's Pressing Need to Buy Gold", Vronsky, Gold-Eagle, December 29, 2009

Drugs, Terrorism and Shadow Banking

By Bernd Debusmann
The Great Debate - Reuters
Friday, March 26, 2010

http://blogs.reuters.com/great-debate/2010/03/26/drugs-terrorism-and-shadow-banking/

The trouble with moving big amounts of cash, from a criminal’s point of view, is threefold. It’s bulky, it’s heavy and it smells.

A stash of $1 million in mixed bills weighs around 100 pounds (50 kilos). Specially-trained dogs can sniff out bulk cash in a heartbeat.

All of which helps to explain why drug cartels and financiers of terrorism appear to have been making increasing use of what FBI chief Robert Mueller calls a shadow banking system.

Its features include a legal loophole that allows money launderers to get around the requirement that cash or “monetary instruments” (share certificates, travellers’ cheques, money orders etc.) in excess of $10,000 must be declared on entering or leaving the United States.

It is, however, perfectly legal to carry, say, $50,000 embedded in the magnetic stripes of so-called pre-paid stored-value cards.

They look like a credit or debit card but are not linked to a bank account, can in many cases be loaded anonymously, are not “monetary instruments” under U.S. law, and were labelled “the ideal instrument for large-scale drug trafficking and money-laundering operations” in a 2006 analysis by the National Drug Intelligence Center.

It predicted that drug traffickers, narco-terrorists and other criminals would increasingly rely on stored-value cards — “superior to established methods of money laundering” — because they could be used without fear of documentation, identification, law enforcement suspicion or seizure.

In other words, a shot in the arm of the global money laundering industry, an illicit enterprise that accounts for between 2 and 5 percent of the world’s GDP, according to an estimate by the International Monetary Fund. The Center’s dark warnings did little to curb the rapid growth of the stored-value card industry — more than $300 billion a year by some estimates.

At a congressional hearing in mid-March, the FBI’s Mueller reported that “recent money laundering investigations have revealed a trend on the part of criminals to use stored-value devices such as pre-paid gift cards and reloadable debit cards in order to move criminal proceeds.

“This has created a shadow banking system…”

The largely unregulated stored-value card industry, he said, made it difficult for law enforcement to spot transaction patterns that can help identify money launderers and financiers of terrorism.

Read the rest of the article.

For further reading:
"Real criminals use virtual worlds to launder money", Press Release, University of the West of England, March 22, 2010
"Money launderers going high-tech", Miami Herald, March 18, 2010
"Virtual Money Inc. Bust Now Linked to Colombian Drug Money", DGC Magazine, December 9, 2009
"More on the cash menace", Dave Birch, September 21, 2007
"How to Launder Money in the Futures Market", J. Orlin Grabbe, November 24, 1996

America's Decline into Unconstitutional Money

Michael S. Rozeff, on March 23, 2010, published parts one and two of his brilliant story on America’s decline into unconstitutional money, entitled "The U.S. Constitution and Money".

The articles below summarize portions of Edwin Vieira’s out-of-print Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution alloyed with the gloss that comes from Rozeff as finance professor. Rozeff states, "Actually, the era and material covered (1789-1860) show no constitutional decline in the coinage acts and government debt issues, but an affirmation of constitutional provisions on money. If you ever wanted to understand bimetallism, this article may help a bit. If you want to know what it meant to regulate the value of coins, this is explained. If you want to see how the Supreme Court mangled the Constitution in Knox v. Lee (1870), some of that is in here too."

The U.S. Constitution and Money (Part 1)

The U.S. Constitution and Money: 1789-1860 (Part 2)

The U.S. Constitution and Money, Part 3 and Part 4, can be found here.

Michael S. Rozeff is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

Free Banking, the Balance Sheet and Contract Law Approach

Chairman of the UK Cobden Centre, Toby Baxendale, published an excellent analysis of the fractional reserve vs. 100% reserve debate within the Austrian free banking school: "Free Banking, the Balance Sheet and Contract Law Approach" (March 15, 2010). Toby says, "The importance of this debate is that the School, whilst being the only School in economics to predict the crash, does not have a uniform policy prescription, or at least one policy prescription to fix our economy and put it on a sound and stable footing going forward."

Toby Baxendale is an entrepreneur who owns a company which is Britain’s largest fresh fish supplier to the catering trade. He also has active interests in several charities and is a Magistrate and an Ironman triathlete. Toby is also dedicated to furthering the teaching of the Austrian School of Economics and the revival of the Great Manchester School of Cobden and Bright. Concerning the former he has helped with its revival at the London School of Economics.

The Monetary Future previously covered this topic on June 30, 2009 with "Why Fractional Reserve Banking Is More Libertarian than the Gold Standard".

The Cobden Centre is an independent educational charity founded formally to undertake research into economic and political science and to disseminate the results thereof and to advance the education of the public in economic and political science.

Richard Cobden (1804-1865) was an entrepreneur and politician who stood for honest money, free trade and peace. He opposed war and profligate military adventurism. Cobden played a leading role in the repeal of the Corn Laws in 1846, to the general benefit of the working man. Richard Cobden believed that free trade would maximise general welfare and create bonds of peace between nations. He was widely recognized as a model European statesman and as “The International Man’. Cobden had this to say about money¹:

"I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency and managing the currency I look upon to be an absurdity; the currency should regulate itself; it must be regulated by the trade and commerce of the world; I would neither allow the Bank of England nor any private banks to have what is called the management of the currency…"

"I should never contemplate any remedial measure, which left to the discretion of individuals to regulate the amount of currency by any principle or standard whatever… I should be sorry to trust the Bank of England again, having violated their principle [the Palmer rule]; for I never trust the same parties twice on an affair of such magnitude (Q. 519, 520, 527)."

One Currency Doesn't Require 'One Europe'

By Judy Shelton
Atlas Sound Money Project
Friday, March 19, 2010

http://www.soundmoneyproject.org/?p=992

The euro has gained stature as an alternative to the U.S. dollar. Preserving it will require letting profligate state like Greece pay their own way.

The creation of the euro was either the greatest historic achievement of the last century—or its worst delusion.

Not to be glib, but the answer is both: The euro represents a magnificent step toward fulfilling money’s highest purposes—to serve as a medium of exchange, a unit of account, and a store of value—but it’s also fraught with problems borne of wrongly commingled economic objectives and political aspirations.

Hence, Europe’s single currency is proving both a boon and a bane to free market capitalism. While it facilitates economic transactions across borders and helps to optimize investment, the euro’s vulnerability to the bad behavior of individual member nations calls into question its ultimate dependability.

How—or whether—our allies across the Atlantic manage to resolve the fundamental conflict between providing sound money and bailing out spendthrift governments will have a crucial impact in determining Europe’s future. And our own.

At issue is whether government should be involved in the fundamental task of issuing a reliable form of money. Given that politicians have a penchant for short-term fiscal indulgence at the expense of long-term monetary stability, there is an obvious conflict of interest.

The Europeans opted to deal with this conundrum by designating a monetary authority—the European Central Bank—as a supranational institution ostensibly immune to political pressures that might emanate from member states. Focusing on “price stability” as its paramount objective, the ECB has done a laudable job resisting calls for easier monetary policy; in the 12 years since the euro was introduced, it has delivered inflation averaging about 2% annually and has gained stature as an alternative global reserve currency to the U.S. dollar.

But what to do now? With Greece flummoxed by strikes and social upheaval as it wrestles with a 12.7% budget deficit and potential debt default, it’s not clear to what extent fiscal profligacy will be resolved through monetary laxity. Asked whether the ECB would bail out Greece and other struggling European nations, ECB President Jean-Claude Trichet responded in a Fox Business Network interview last Friday: “It is not the ECB which is at stake; it is the governments of Europe. They have said in their summit that they stood ready to do whatever was necessary to maintain financial stability in the euro area. I stick to that statement myself.”

While Mr. Trichet is trying to draw a line between the monetary institution that stands behind the euro and the governments of the 16 nations that comprise the euro area—and whose central bank governors sit on the ECB’s Governing Council, its main decision-making body—it is not so easy to separate them.

The whole purpose of forging a single currency, after all, was to foster greater European economic integration. And the broader notion behind that concept, some five decades in the making, is that economic integration begets political integration. For a continent that suffered two devastating wars in the last century, it seems a most worthy goal; indeed, brochures distributed by the European Commission for purposes of explaining the history behind the euro carry the title: “One Currency for One Europe.”

If there were any doubt that Europe’s political fate is intertwined in the euro’s continued viability, it was dispelled by French President Nicolas Sarkozy’s observation, apropos of the Greek situation, earlier this month. “We cannot let a country fall that is in the euro zone,” he told French farmers. “Otherwise, there was no point in creating the euro.”

The United States faced a similar dilemma early in its own history. Confronted with the need to have a common currency among the newly-established states that had become a single sovereign nation following the Revolutionary War, yet wary of granting money powers to a federal Congress, the Founding Fathers chose to place limits on government to prevent it from abusing the public trust. Excessive money issuance through “bills of credit” issued by state governments to serve as legal tender had already proven to lead to financial disaster; unless money was defined in precise terms to determine its value, it could not function as a meaningful unit of account.

In other words, money was to be a standard in the same way that official weights and measures were standards. States could not debase money for political reasons or to surreptitiously reduce their debts. In the debate over the government’s proper monetary role in 1784, Thomas Jefferson asserted, “If we determine that a dollar shall be our unit, we must then say with precision what a dollar is.”

In the Constitution adopted three years later, legal tender coinage was limited to gold and silver. Congress was given the power to coin money and to “regulate” its value—that is, to specify the legal value of the coins in terms of a number of dollars. While Congress was permitted to borrow money on the credit of the United States, this was strictly a fiscal power that had nothing to do with creating money.

All of which suggests that Europe—and America—would do well to tap the wisdom of the past in seeking to fulfill its political destiny without sacrificing its monetary integrity. Contrary to George Soros’s pronouncement that the euro is flawed because there is “a common central bank, but you don’t have a common treasury,” the way to save the euro is to remove it even further from the compromising process of government fiscal policy.

It’s interesting that Mr. Trichet, lamenting that “finance lost contact with its raison d’etre” in a March 12 speech at Stanford University, invoked lessons from an earlier era. “There is a widespread perception that banking crises in times when money was convertible into gold had apocalyptic consequences for bank depositors. This is not true. The estimated average loss on assets born by depositors in banks that were closed down as a consequence of financial crisis was minuscule.”

Mr. Trichet cited the importance of well-capitalized banks to defend against financial innovation that has come to “serve itself” rather than the real economy, and placed his faith in more international regulation. While he is right to worry about our increasingly wag-the-dog world of speculative finance, the way to reconnect financial flows with productive enterprise is to empower individuals through honest money.

Capitalism needs a sound monetary foundation to function properly. It’s something our Founders worked out a long time ago.

Ms. Shelton, a senior fellow at the Atlas Economic Research Foundation, is author of “Money Meltdown: Restoring Order to the Global Currency System” (Free Press, 1994).

This article was originally published in The Wall Street Journal.

opencoin: Open Source Electronic Cash

Opencoin describes itself as open source electronic cash and the opencoin project implements "digital cash". The system gives minting software, wallet software and everything that is necessary to have a system for anonymous electronic transactions. It can be used for vouchers, online payments, complementary currencies etc. The SourceForge mail archives can be found here and a sample user interface is provided here. opencoin defines standards and provides an implementation around the blind-signature system as invented by David Chaum, known as electronic cash / digicash. The software and specifications are opensource under a GPL License. For further information, please see:

"Extensions to Chaum's Blind Signature Scheme and OpenCoin Requirements"
A.W. Dent, K.G. Paterson and P.R. Wild
Information Security Group
Royal Holloway, University of London
February 27, 2008

Section 2 of this document gives an overview of the Chaum on-line e-cash scheme that makes use of blind RSA signatures. Section 3 outlines some extensions of the basic Chaum scheme that could be of use in the OpenCoin project. Section 4 discusses future requirements of the OpenCoin project and how they might be met.


"Preliminary Report on Chaum's Online E-Cash Architecture"
A. W. Dent, K. G. Paterson, and P. R. Wild
Information Security Group
Royal Holloway, University of London
February 28, 2008

This report discusses the security of Chaum's online e-cash architecture. This architecture can be used with an arbitrary blind signature scheme to give an anonymous e-cash system. This should be regarded as a preliminary report after a short period of research.

I find it interesting that the working group poses some very important legal questions and then progress mysteriously seems to slow. The opencoin project was originally funded by the lda, run by the open.coop, in cooperation with the Queen Mary University of London and Royal Holloway, University of London.